Self Employed Pension Dilemma - Diversification Key?

Jamie1088

Hi there just looking for some self employed pension advice. Bit of a background, in 31 and currently on Dave Ramsey’s Baby Step 2 which should be finished by the end of September, so looking to invest for retirement after I build a bigger emergency fund.

So I’m looking at setting aside £200/month for retirement , and using the extra towards my mortgage.

I’ve looked paying part of the £200 into a lifetime ISA to claim the 25% government allowance. Was also looking at setting up a Vanguard, Stocks and Shares Isa, or a Market Index fund.
M

Just to get a rough idea of what the best route to go down would be, and is splitting up my funds and diverting them into different types of savings accounts the way to go? Was looking at having 80% low risk but with the other 20% at a higher risk.

And one final question, should I wait until the next recession before starting up anything to do with stocks and shares isa’s so get buying at the lowest starting price?

A lot of questions but will be delighted with your advice and input. Thanks

Linton

The normal place for for retirements savings is a pension. Is there any reason for this not being an option?

I’ve looked paying part of the £200 into a lifetime ISA to claim the 25% government allowance. Was also looking at setting up a Vanguard, Stocks and Shares Isa, or a Market Index fund.

In terms of cars: you are mixing up the manufacturer, the garage, and the type of car. You put funds into an ISA. Market Index are a type of fund. Vanguard is a provider of funds, some of which are Index funds.

Just to get a rough idea of what the best route to go down would be, and is splitting up my funds and diverting them into different types of savings accounts the way to go? Was looking at having 80% low risk but with the other 20% at a higher risk.

If you are saving for retirement you have a timescale of perhaps 30 years. This should justify a much higher level of risk - many people use 80% or 100% equity (share based) funds. The short term "events" in the next 30 years will become increasingly less significant than the underlying trend. If you are too cautious you will miss out on significant returns especially taking inflation into account.

And one final question, should I wait until the next recession before starting up anything to do with stocks and shares isa’s so get buying at the lowest starting price?

And if no recession happens for say 10 years? The last one was 10 years ago. And if a big one happened would you have the nerve to buy investments when everyone else was selling them? No, its best to start investing as soon as you have the money, on average that will provide the best return since share prices spend more time going up than they do falling.

greenglide

Many people here claim to be self employed when they are not.


Are you really self employed (sole trader etc) or are you actually employed by you own limited company? For retirement savings the difference is huge!

xylophone

Are you self employed or employed by your own company?

See here for information only.

https://www.pensionbee.com/pensions-explained/pension-contributions/contributing-to-your-pension-from-your-limited-company

A simple stakeholder could be an option as a start - this could be transferred to another arrangement in due course if required.

https://www.cavendishonline.co.uk/pensions/stakeholder-pensions/

Jamie1088

I have my own window cleaning business myself and have done for 6 years. I’m a registered sole trader and only have myself employed in my company.

Jamie1088

Just to clarify, for tax purposes I’m a sole trader. Just in case there is any confusion. Also thanks for the detailed replies so far!

JoeCrystal

Jamie1088 wrote: »

So I’m looking at setting aside £200/month for retirement , and using the extra towards my mortgage.

Depending on the interest rate of the mortgage in question, it may be worth putting more into a pension scheme rather than overpaying the mortgage since the return may be better in the pension pot.

Jamie1088 wrote: »

And one final question, should I wait until the next recession before starting up anything to do with stocks and shares isa’s so get buying at the lowest starting price?

No, you shouldn't. However, if the recession does hit, I would just increase the monthly contribution even further.

Jamie1088

Thanks Joe, common sense when it comes to my contributions that I’ll take on board!

With regards to my mortgage, I have £53,000 left to pay which is currently on a 2.4% fixed for 4 more years.

Paul_Herring

And one final question, should I wait until the next recession before starting up anything to do with stocks and shares isa’s so get buying at the lowest starting price?

No. Start saving now and get into the habit of not noticing you're not getting the money in your bank account.

If you don't, what's all that money going to be getting you while you're waiting for it? If you don't spend it in the meantime that is.

When's it going to happen?

Why miss out on those smaller dips where pound cost averaging will get you something?

dunstonh

Just to get a rough idea of what the best route to go down would be, and is splitting up my funds and diverting them into different types of savings accounts the way to go? Was looking at having 80% low risk but with the other 20% at a higher risk.

Age age 31, having such a low risk spread actually increases your risk. Not reduce it. You are far more likely to suffer shortfall risk and inflation risk.

And one final question, should I wait until the next recession before starting up anything to do with stocks and shares isa’s so get buying at the lowest starting price?

And when will that next recession be? And what makes you think stockmarkets follow in line with recessions?

What about all the more frequent minor drops you could take advantage of with regular monthly payments?

I’ve looked paying part of the £200 into a lifetime ISA to claim the 25% government allowance. Was also looking at setting up a Vanguard, Stocks and Shares Isa, or a Market Index fund.

A market index fund would be a much higher risk than you have suggested you want.

With regards to my mortgage, I have £53,000 left to pay which is currently on a 2.4% fixed for 4 more years.

So, your mortgage rate is around half the typical long term return of medium risk investments. Plus, you would be paying it after tax. Financially, overpaying the mortgage is not the best option. That said, a combination of overpaying mortgage and paying into a pension is very common. Not paying into a pension at all is unusual.

Jamie1088

Thanks for the replies everyone. I’m sure this thread will be of value to many in the same position as myself.

I’ve veen trying to do as much research as possible, be it through Dave Ramsey, Robert Kiyosaki and traders like Jason Greystone, so building up my knowledge for when I’m out my debt and have my emergency fund.

So just to summarise in simple terms. What do you think would be the overall best option to invest my 15% a month of my salary into? Thanks